Share this content

Reimbursement of cost of holiday

Employee cancelled holiday at employer's request

Didn't find your answer?

An emergency arose at work, and the company requested that an employee cancel his holiday to help with the issue.

The employer agreed to reimburse the non-refundable holiday costs that the employee had incurred.

Is this re-imbursement a taxable benefit? 

Replies (15)

Please login or register to join the discussion.

RLI
By lionofludesch
06th May 2016 08:58

No. What benefit has the employee had ?

Thanks (0)
Replying to lionofludesch:
avatar
By Mr_awol
11th May 2016 09:35

lionofludesch wrote:

No. What benefit has the employee had ?

He has received money or money's worth, in recognition of his dedication in agreeing to cancel a holiday.

You never know - it might have been a trip to visit the in-laws, in which case its a double bonus.

Thanks (1)
By cheekychappy
06th May 2016 09:06

No.

Thanks (0)
avatar
By Mr_awol
06th May 2016 09:16

Direct payment could be argued to be the settlement of pecuniary liability. Reimbursement = earnings.

The employer should gross up the payment to ensure that the employee receives a net payment equal to the cancellation cost/cost of changing the holiday to an alternative week.

Thanks (0)
Replying to Mr_awol:
avatar
By emma_h
06th May 2016 09:51

Mr_awol wrote:

Direct payment could be argued to be the settlement of pecuniary liability. Reimbursement = earnings.

The employer should gross up the payment to ensure that the employee receives a net payment equal to the cancellation cost/cost of changing the holiday to an alternative week.

Definitely think this is the answer, gross up to give the employee the net amount of the reimbursement

Thanks (1)
Replying to Mr_awol:
By pullanl
09th May 2016 15:24

I agree, the employer is meeting the employee's debt or pecuniary liability therefore it is earnings. As the holiday contract is presumably in the employee's name then there is also Class 1 National Insurance as well as being a taxable benefit. See page 35 of the CWG5 2016. So grossing up the payment as suggested is an excellent idea.

Thanks (2)
avatar
By SwanseaJack
06th May 2016 09:26

My thought is that to avoid tax, the re-imbursement would have to satisfy the "wholly, exclusively & necessarily" rule.
It is very unfair for the payment to be taxed, but I'm struggling at the moment to find the correct argument that it satisfies that rule.

Thanks (1)
Replying to SwanseaJack:
By Democratus
06th May 2016 10:11

Could be compensation - try that

Thanks (1)
Portia profile image
By Portia Nina Levin
06th May 2016 10:26

It is earnings. It is a cash payment received by reason of the employment.

Thanks (1)
avatar
By andrew55
06th May 2016 12:57

I had this exact situation around 10 years ago. We reimbursed the costs of the aborted holiday without any tax or NI as we would for any other employee expense. This was subsequently agreed by the inspector at a PAYE inspection but we carefully saved all of the evidence to back this up including the letters from the customer who needed the work doing urgently.

Thanks (2)
avatar
By mickeyparish
09th May 2016 15:41

I agree with the first and last responses. The employee had no benefit and probably incurred additional personal costs in booking of a new holiday ( or suffered the loss of a holiday for which they receiv ed no compensation - which would have been taxable ). A payment received from a travel insurance company in parallel circumstances would not be taxed as income.

Thanks (0)
RLI
By lionofludesch
10th May 2016 16:00

I wouldn't be grossing this up under any circumstances. If the HMRC officer wants to take it up at a visit, I'd see him at Tribunal.

Thanks (0)
avatar
By Phi
11th May 2016 09:13

This cannot be a taxable benefit. Look at what has happened. The employer has asked the employee to cancel a holiday due to a work emergency. The employee is compensated for the loss he has incurred. The loss incurred was wholly, exclusively and necessarily for the purpose of his employment. The employee received no personal benefit. I would happily argue this at a tribunal.

Thanks (0)
avatar
By Mr_awol
11th May 2016 09:33

Ive got to be honest - I was surprised to find anyone thinking this could be reimbursed free of tax. It seemed such an obvious clear cut case that its earnings, and thus should be grossed up.

So I had a five minute google. I couldn't find much to confirm or deny my belief. In fact I found only one similar/matching article:

https://www.cchdaily.co.uk/employment-taxes-update-17

I agree with this. Personal holiday, personally incurred cancellation costs and therefore and reimbursement must be grossed up. I can see why this may feel illogical, but since when did common sense apply to tax?

Thanks (0)
Replying to Mr_awol:
RLI
By lionofludesch
12th May 2016 10:01

Mr_awol wrote:

Ive got to be honest - I was surprised to find anyone thinking this could be reimbursed free of tax. It seemed such an obvious clear cut case that its earnings, and thus should be grossed up.

So I had a five minute google. I couldn't find much to confirm or deny my belief. In fact I found only one similar/matching article:

https://www.cchdaily.co.uk/employment-taxes-update-17

I agree with this. Personal holiday, personally incurred cancellation costs and therefore and reimbursement must be grossed up. I can see why this may feel illogical, but since when did common sense apply to tax?

Here we are again - HMRC says so, so it must be right.

Has this been tested in the Courts ?

How much is going to be at stake here ?

Thanks (0)
Share this content